What is the sixth step in the accounting cycle?

• A. Journalize transactions
• B. Close temporary accounts
• C. Prepare financial statements
• D. Prepare post-closing trial balance

Answer: (B)

Closing temporary accounts is the step that resets the balances of revenues, expenses, and withdrawals (or drawings) to zero for the new period, while transferring the period’s net result to permanent equity, typically Retained Earnings. This is done so that each accounting period starts with a clean slate for those accounts, ensuring that revenues and expenses do not accumulate across periods and that the income or loss for the current period is reflected in retained earnings. After this closing process, only permanent accounts remain open, which is what the post-closing trial balance verifies. In the usual sequence, this step comes after the period’s statements have been prepared and the necessary adjustments, and it is followed by the post-closing trial balance.